The new banking laws also include raising limits on voting
rights for shareholders in state-controlled lenders and allow
the banks to raise capital through rights offerings. Yesterday’s
approval ends a two-year process that may lead to more banking
competition for State Bank of India (SBIN), the country’s largest, and
ICICI Bank Ltd. (ICICIBC), its biggest private lender.

“This would pave the way for the RBI to issue much-awaited
new banking licenses for which a lot of non-bank financial
companies have been queuing up,” Deven Choksey, managing
director at Mumbai-based K.R. Choksey Shares & Securities Pvt.,
said by phone. “An increase in voting rights would mean better
investor representation in lenders, especially state-owned
banks, which can attract investment into the sector.”

The final rules for banking permits will be issued after
the central bank has received the additional regulatory powers,
Governor Duvvuri Subbarao said last month.

Given the criteria set by the RBI, L&T Finance and Mahindra
& Mahindra have a strong chance of getting licenses, Antique
Stock Broking Ltd. analysts led by Sunesh Khanna wrote in a note
dated Dec. 11.

Under the rule changes, the limit on voting rights of
shareholders in state-run banks was raised to 10 percent from 1
percent, and in other lenders to 26 percent from 10 percent.